Keating accuses super managers of risky investing

Ben Butler and Gareth Hutchens

The architect of the superannuation system, the former prime minister Paul Keating, has attacked super fund managers for investing too heavily in the stock market.

Mr Keating said Australians expected unrealistically high returns from their super funds, which in turn encouraged fund managers to take too many risks on the market.

He also called for an increase in super fund contributions, from 12 to 15 per cent, but said the additional contribution should be placed in a long-term, government-run fund and devoted to healthcare.

He said this was necessary because people were living far longer than was expected when the superannuation scheme was set up.

"Instead of 15 per cent wage equivalent going simply to retirement accumulations, managed by the private funds management industry, I'm suggesting that an alternative may be 12 per cent under the SG [superannuation guarantee] being managed privately and 3 per cent collected under a modified SG being managed within a government longevity insurance fund," Mr Keating told the Association of Superannuation Funds of Australia conference this Wednesday.

Mr Keating said Australian super funds had about two-and-a-half times the exposure to the stock market as European schemes, meaning they were too exposed to the most volatile asset class.

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He said fund managers reaped benefits in the form of increased fees when their investment decisions performed well, but were not exposed to any downside risk when the market plunged.

"This is pretty squalid," he said.

He said both sides of politics, together with business and unions, needed to join together to redesign the super system to cope with an ageing population.

And he praised opposition leader Tony Abbott and shadow treasurer Joe Hockey for supporting the Gillard government's move to increase super contributions from 9 per cent to 12 per cent.